nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2015‒10‒25
eleven papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Is There an Informal Employment Wage Penalty in Egypt By Aysit Tansel; Halil Ibrahim Keskin; Zeynel Abidin Ozdemir
  2. Estimating Effects of the Minimum Wage in a Developing Country: A Density Discontinuity Design Approach By Hugo Jales
  3. Liberia.Expanding formal employment through labour market reforms. By Matteo G. Richiardi
  4. On the benefits of formalization: Panel evidence from Vietnam By Amadou Boly
  5. The causal impacts of child labor law in Brazil : some preliminary findings By Piza,Caio; Portela Souza,André
  6. Financial incentives and labor market duality. By C. Berson; N. Ferrari
  7. Microfinance and Moneylenders: Long-run Effects of MFIs on Informal Credit Market in Bangladesh By Berg, Claudia; Emran, Shahe; Shilpi, Forhad
  8. Dual credit markets and household access to finance : evidence from a representative Chinese household survey By Cull,Robert J.; Gan,Li; Gao,Nan; Xu,L. Colin
  9. Determinants of the Demand for Cash in Peru: A Non Linear Approach By Ramírez, Juan; Vásquez, José; Pereda, Javier
  10. MSME taxation in transition economies : country experience on the costs and benefits of introducing special tax regimes By Engelschalk,Michael; Loeprick,Jan
  11. Crecer no es Suficiente para Reducir la Informalidad By Céspedes, Nikita

  1. By: Aysit Tansel (Department of Economics, Middle East Technical University, IZA, and ERF Cairo); Halil Ibrahim Keskin (Department of Econometrics, Gazi Unversity); Zeynel Abidin Ozdemir (Department of Economics, Gazi Unversity, ERF Cairo)
    Abstract: This paper considers the private sector wage earners in Egypt and examine their wage distribution during 1998-2012 using Egyptian Labor Market Panel Survey. We first estimate Mincer wage equations both at the mean and at different quantiles of the wage distribution taking into account observable characteristics. Then we make use of the panel feature of the data and estimate models taking into account unobservable characteristics. We also consider the possibility of nonlinearity in covariate effects and estimate a variant of matching models. In all cases we find a persistent informal wage penalty in the face of extensive sensitivity checks. It is smaller when unobserved heterogeneity is taken into account and larger at the top than at the bottom of the conditional wage distribution. We also examine the informal wage penalty over time during the study period and in different groups according to experience and education. The informal wage penalty has increased recently over time and is larger for the better educated but smaller for the more experienced.
    Keywords: Formal and informal wage gap; Formal and informal employment; Panel data; Egypt.
    JEL: J21 J31 J40 O17
    Date: 2015–10
  2. By: Hugo Jales (Center for Policy Research, Maxwell School, Syracuse University, 426 Eggers Hall, Syracuse, NY 13244)
    Abstract: This paper proposes a new framework to identify the effects of the minimum wage on the joint distribution of sector and wages in a developing country. I show that under reasonable assumptions, cross-sectional data on the worker's wage and sector can identify the joint distribution of the latent counterparts of these variables; that is, the sector status and wage that would prevail in the absence of the minimum wage. I apply the method in the “PNAD”, a nationwide representative Brazilian cross-sectional dataset for the years 2001 to 2009. The results indicate that the size of the informal sector is increased by around 39% compared to what would prevail in the absence of the minimum wage, an effect attributable to (i) unemployment effects of the minimum wage on the formal sector, (ii) movements of workers from the formal to the informal sector as a response to the policy.
    Keywords: Minimum Wage; Informality; Unemployment; Density Discontinuity Design; Wage Inequality; Labor Tax Revenues; Formal Sector
    JEL: J60 J30 J31
    Date: 2015–10
  3. By: Matteo G. Richiardi
    Abstract: The objective of this report is to provide an assessment of labor market regulations in Liberia, in particular employment protection legislation (EPL), minimum wages, and social insurance schemes. This is particularly relevant as a new labor code, the Decent Work Bill, has just been legislated with a twofold increase in the minimum wage, rising concerns that it will further reduce an already limited demand for formal employment (less than 20% of total employment). Without changing the Decent Work Bill, which is taken as a political constraint, the report makes proposals for reforms “at the margin” aimed at extending demand for formal employment, with specific social insurance schemes targeted at the newly formalized employees.
    Date: 2015
  4. By: Amadou Boly
    Abstract: This paper presents new evidence on the study of income mobility in Ecuador over the period 2004�..11. We utilize longitudinal data of individual income File-URL: rking-papers/2015/en_GB/wp2015-039/_file s/93548957648879904/default/wp2015-039.p df
    Keywords: inequality, inequality of opportunity, Uganda, great recession
    Date: 2015
  5. By: Piza,Caio; Portela Souza,André
    Abstract: This paper investigates the causal impact of the change in Brazil?s child labor law of December 1998. The change increased the minimum legal age of entry into the labor force from 14 to 16 years. The analysis uses a difference-in-differences approach to estimate the impact of this change in the law on labor force participation rates as a whole, as well as for the formal and informal sectors separately. The results show that the ban reduced participation rates for boys by 4 percentage points and that this effect was mostly driven by the informal sector. No effect is found for girls.
    Keywords: Children and Youth,Labor Markets,Street Children,Labor Policies,Youth and Government
    Date: 2015–10–19
  6. By: C. Berson; N. Ferrari
    Abstract: In coordination with the ECB and 24 other national central banks of the European Union, the Banque de France interrogated 1150 French firms to understand how the crisis affected their economic environment and their human resources practices during the 2010-2013 period. A majority of workers were employed by firms which indicate that their activity was mostly affected by a decrease in demand considered as long-lasting by more than 40% of them, especially in the construction sector and among small firms. In contrast, less than 20% of firms (weighted by their employment) report that the unavailability of credit had an effect on their activity. Over the period, despite the economic downturn, the amount of total costs increased for 70% of firms (weighted by their employment) mainly through an increase in labour costs and secondly in the cost of supplies. In particular, base wages continued to increase for a large share of firms, suggesting strong downward wage rigidities. Many firms indicate substantial difficulties in adjusting the labour force: throughout the crisis it became more difficult to hire qualified employees, to adjust working hours or to move workers to different job positions. The joint presence of difficulties in finding employees and unemployment growth suggest that structural unemployment increased in France in recent years. Other factors considered as significantly constraining for employment growth by a large majority of firms are uncertainty about economic conditions, risks that labour laws are changed, high payroll taxes and firing costs.
    Keywords: Duality, public policies.
    JEL: J41 J42 J48
    Date: 2015
  7. By: Berg, Claudia; Emran, Shahe; Shilpi, Forhad
    Abstract: Using two surveys from Bangladesh, this paper provides evidence on the effects of microfinance competition on village moneylender interest rates and households’ dependence on informal credit. The views among practitioners diverge sharply: proponents claim that MFI competition reduces both the moneylender interest rate and households’ reliance on informal credit, while critics argue the opposite. Taking advantage of recent econometric approaches that address selection on unobservables without imposing standard exclusion restrictions, we find that the MFI competition does not reduce moneylender interest rates, thus partially repudiating the proponents. The effects are heterogeneous; there is no perceptible effect at low levels of MFI coverage, but when MFI coverage is high enough, the moneylender interest rate increases significantly. In contrast, households’ dependence on informal credit tends to go down after becoming MFI member, which contradicts part of the critic’s argument. The evidence is consistent with a model where either MFIs or moneylenders engage in cream skimming, and fixed costs are important in informal lending.
    Keywords: Microfinance, Moneylenders, Microcredit, Interest Rates, Informal Borrowing, Long-run Effects, Bangladesh, Identification through Heteroskedasticity
    JEL: C3 O12 O17
    Date: 2015–10–20
  8. By: Cull,Robert J.; Gan,Li; Gao,Nan; Xu,L. Colin
    Abstract: Using a new and representative data set of Chinese household finance, this paper documents household access to and costs of finance, along with their correlates. As in most developing countries, informal finance is a crucial element of household finance, and wealth tends to be associated with better access to formal and informal finance. Better financial knowledge shifts loan portfolios toward formal sources relative to informal ones. Connections to the Communist Party are associated with significantly better access to finance in rural areas but not in urban areas. A larger social network is positively associated with access to informal finance. Controlling for household characteristics, rural residents pay interest rates on loans similar to urban residents. Younger residents pay higher rates, while households on firmer economic footing face lower rates. Taking financial classes and college education is associated with higher interest rates for urban residents, suggesting perhaps that financial knowledge coincides with greater demand for credit in areas with more economic opportunity. Overall, the findings suggest that Chinese residents face dual credit markets, with the poor, young, those with poor financial knowledge, and those with larger family sizes relying much more on informal finance, while others are better able to access formal finance.
    Keywords: Access to Finance,Bankruptcy and Resolution of Financial Distress,Debt Markets,Banks&Banking Reform,Financial Literacy
    Date: 2015–10–22
  9. By: Ramírez, Juan (Banco Central de Reserva del Perú); Vásquez, José (Banco Central de Reserva del Perú); Pereda, Javier (Banco Central de Reserva del Perú)
    Abstract: This paper estimates the main determinants of the demand for cash in Peru from 2002 to 2013. Cash data is analyzed in two levels: considering an aggregate level, where all the notes circulating in the economy are included; and considering the type of denomination. Two sub-groups were defined: lower denomination notes (S/. 10, S/. 20 and S/. 50), and higher denomination notes (S/. 100 and S/. 200). We construct a model of the demand for cash following Adam (2000). For each sub-group, we estimate a non-linear relation with the Markov switching model method (MSM). The MSM estimation shows that the analyzed period has two different regimes. Depending on the sub-group and the regime analyzed, the results differ. The general conclusion is that low denomination notes are highly correlated with transactional variables and in a lower degree with interest rates. Meanwhile, the demand for high denomination notes is positively correlated with the ratio of dollarization and the informal sector of the economy. These results are consistent with the Cash Usage Surveys taken by the Central Bank in 2008 and in 2012.
    Keywords: Cash, money demand, dollarization, informality, Markov switching model
    JEL: E41 E51 Y E52
    Date: 2015–10
  10. By: Engelschalk,Michael; Loeprick,Jan
    Abstract: The paper analyzes the design of simplified small business tax regimes in Eastern Europe and Central Asia and the impact of such regimes on small business tax compliance. Although many approaches for tax simplification exist, a general trend in the region is to offer small businesses the option to be taxed based on their turnover instead of net income. The study finds that many of the regimes in place are overly simplistic and neither take into account fairness considerations nor do they facilitate business growth and migration into the standard tax regime. Although revenue generation is not a main objective of such regimes, low revenue performance and the risk of system abuse by larger businesses should be issues of concern. More attention should therefore be devoted to improving the design of simplified regimes and monitoring their application. This will require in particular a more profound analysis of the economic situation and the tax compliance challenges in the small business segment and increased efforts to improve the quality of bookkeeping.
    Keywords: E-Business,Tax Law,Debt Markets,Emerging Markets,Taxation&Subsidies
    Date: 2015–10–19
  11. By: Céspedes, Nikita (Ministerio de Economía y Finanzas)
    Abstract: En este documento se estudia la relación de la informalidad laboral y el crecimiento económico en el Perú a nivel regional. Se utiliza la tasa de desempleo urbano y al consumo de electricidad por regiones y provincias como indicadores de la actividad económica en el contexto de un modelo de elección discreta de informalidad a nivel de trabajadores. Se encuentra que la elasticidad informalidad-crecimiento es estadísticamente significativa y pequeña, con lo cual, la contribución de la mayor actividad económica en la reducción de la informalidad laboral es también pequeña. Se sugiere que el crecimiento económico repercute en la informalidad mediante la creación neta de empleos mayormente formales y de mayor productividad respecto a los empleos informales. Además, se muestra que los empleos formales tienen un retorno mayor en términos de salario respecto al sector informal, aunque esta brecha se estaría reduciendo desde inicios de la década del 2010; lo cual estaría debilitando los incentivos hacia la formalización de los empleos.
    Keywords: Informalidad, crecimiento económico, dinámica del empleo, transiciones laborales
    JEL: K20 K30 H11 O17 O40
    Date: 2015–10

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